Alternative Minimum Tax (AMT)
A parallel tax system that ensures high-income taxpayers pay at least a minimum amount of tax. For 2025, the AMT exemption is $88,100 (single) and $137,000 (married filing jointly).
The Alternative Minimum Tax (AMT) is a separate tax calculation that runs parallel to the regular income tax. It was originally designed to ensure that wealthy taxpayers who use many deductions and preferences still pay a minimum amount of tax. You pay whichever is higher — your regular tax or your AMT.
AMT taxable income is calculated by starting with regular taxable income and adding back certain deductions and preferences, such as state and local tax deductions, certain interest income, and incentive stock option exercises. The AMT has two rates: 26% on income up to $239,100 and 28% on amounts above that. An exemption amount shelters a portion of AMT income — $88,100 for single filers and $137,000 for married filing jointly in 2025.
Since the Tax Cuts and Jobs Act of 2017 significantly increased the AMT exemption amounts and indexed them for inflation, far fewer taxpayers are affected by the AMT than before. However, it can still apply in situations involving large state tax deductions, incentive stock option exercises, or certain tax preference items. The AMT is calculated on Form 6251.
Related Terms
Tax Liability
The total amount of tax you owe for the year before accounting for payments, withholding, and refundable credits. It is the bottom-line tax calculated on your return.
Taxable Income
The portion of your income that is actually subject to federal income tax, calculated by subtracting the standard or itemized deduction from your AGI.
SALT Deduction
An itemized deduction for state and local taxes paid, including income tax (or sales tax) and property tax. Under OBBBA (2025+), capped at $40,000 per return ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor. Pre-OBBBA (2018–2024) the cap was $10,000 flat.
Itemized Deduction
Specific expenses you can deduct instead of taking the standard deduction, including mortgage interest, state/local taxes (SALT cap: $40,000 for 2025+ under OBBBA, phased out for high earners), charitable donations, and medical expenses.